Which of the following helps to explain why the inflation fallacy is a fallacy?
A)Increases in the price level can be created by increases in money demand.
B)Nominal incomes tend to rise at the same time that the price level is rising.
C)As the price level rises,the value of a dollar falls.
D)Inflation only changes nominal variables.

Question

Quizplus · Accepted Answer

The inflation fallacy is the mistaken belief that increases in the price level necessarily lead to a decrease in real incomes. However, empirical evidence shows that nominal incomes tend to rise at the same time as the price level is rising, which means that real incomes may remain stable or even increase during inflationary periods.

Which of the Following Helps to Explain Why the Inflation